Not Gone Away

It's hard being a bear these days. In fact, what I'm experiencing right now reminds me of the frustration and pain I felt back in 2007, when clueless Pollyannas were enchanting the masses (and the media) with talk of a neverending Goldilocks economy and the wonderful job that policymakers were doing to keep things on an even keel.

In the end, my belief that reckless borrowing, speculation, and risk-taking, myriad unsustainable imbalances, and mindless complacency would end badly helped me survive the onslaught of propaganda, lies, and delusion.

Of course, just because I was right before doesn't mean I will be this time around. In fact, after the nightmare of the past few years, I hope I am wrong. Unfortunately, I think the odds of a happy ending are remote. For one thing, many of the problems that caused the crisis to begin with have not gone away.

In "A Strong First Quarter in Stocks, But Investors Shouldn't Ignore the Dark Clouds," the Washington Post discusses one of them.

While acknowledging the improvement in the economy and excesses rung out from the financial system, [bearish] analysts argue that at its core, the same old problems loom: Individual debt, corporate debt, government debt.

David Levy of the Jerome Levy Forecasting Center said that even though upturns in the post-World War II period have lasted for several years, that won't be the case this time.

"Unsustained debt — that's really what's different this time," he said.

For example, he pointed to household debt that, while recently improved, exceeds income. According to Federal Reserve statistics, the financial sector, which includes companies and government-sponsored enterprises, still has outstanding debt that is 119 percent the size of the gross domestic product. In 1990, that ratio was 46 percent.

"What this means is the private sector cannot function the way it normally does," Levy said. "This is a tremendous difference from any other cycle we've had since the 1930s. The idea we're going to jump-start the economy, and then it'll kind of kick in and drive itself — that doesn't work here. . . . Next year is very much a question mark in my mind."